How is pain and suffering calculated?

This is an interesting question, and the at fault driver's insurance company is pretty smart.  Don't fall for it.

There is no way to "calculate" pain and suffering.  And, there is no way to know what future medical care you will need until you are just about fully healed (this is known as "maximum medical improvement" or "MMI" in the personal injury world). 

If the insurance company pays you anything, they will want a release.  The release will excuse them from paying anything more ever again.  If you continue to have problems after you sign a release, too bad.  If you develop complications after you sign a release, too bad.  If you discover other injuries after you sign a release, too bad.  This is why I say don't settle and don't sign a release until you are sure about your future.

You may have a significant claim here.  It is too early to know for sure.  If you hire a lawyer, the lawyer will be paid 1/3 to 40% of any settlement.  In addition, there will be out of pocket costs to pursue a claim and they can be significant (easily $5,000 and perhaps much more if expert witnesses are needed). 

Even though the driver is an illegal Mexican and has no driver's license, the owner of the car may be a second person and may have some (or all) responsibility.  It sounds like the driver's conduct was pretty bad, and a jury won't like that and won't like it if someone let him or her drive without a license.  So, you should consider all the sources who could pay damages to you and your wife.

If there is only a small amount of insurance available, you may be wise to accept something close to the limits without hiring an attorney.  If there is plenty of insurance available (including your own), then you may want to hire an attorney.  People almost always get higher settlements with an attorney.

One way to look at this is -- take the total amount of insurance available for the crash (insurance on the driver, insurance on the owner, and your uninsured/underinsured motorist's coverage).  Deduct 40% for attorney's fees.  Deduct something for costs (start with $5,000).  This is probably your maximum recovery out of a settlement, no matter what an attorney does.  If the insurance companies offer you this amount, you are probably wise to take it.  If the insurance companies don't offer you anything close to this amount, you may want to hire an attorney.

By the way, did either of you hit your head or lose consciousness?  If so, you may have a traumatic brain injury which causes sometimes subtle "cognitive" injuries.  It takes at least 6 months to a year before you know how much brain injury is permanent.  If either of you hit your head or lost consciousness, I would advise you not to settle until you know that you have not suffered a TBI.

I am sorry this answer seems so complicated.  Unfortunately, these kind of cases are complicated.  Unless insurance coverage is very limited, people are almost always better served to hire a lawyer than to try and settle the claim themselves.